Legal Bills & Settlement Costs

[Gail in Virginia]

I have a corporate client that was involved in a lawsuit over ownership.  The legal bills were substantial, and the law firm that most of the money was paid to is in Boston.  When I told them they needed to do a 1099 for the legal fees, they called the law firm to get the information.  The law firm said they had never gotten a 1099.  In Virginia, almost all law firms are partnerships so I would think they would be used to getting 1099s from businesses.  But maybe it is different in Massachusetts?  Or am I missing something about 1099s?

Also, when I question this for the 1099s I found out that a substantial portion of the amount they paid the law firm was part of the settlement - they had to pay the other party's legal fees.  Should that be included on the 1099?  Is it even deductible?  

Any opinions or references would be appreciated.

[Lee B]

Deductibility depends on the ownership of what?

[Gail in Virginia]

22 minutes ago, Lee B said:

Deductibility depends on the ownership of what?

The business itself.  

[Lee B]

3 hours ago, Gail in Virginia said:

The business itself.  

Are you saying that the ownership of the corporate stock was at issue?

[Gail in Virginia]

Yes, that was the issue.  I am not sure of all the details but there was another substantial amount that was sent as part of the settlement to pay for the other party's share of the business which was not included in the corporation's books.  I am not sure whether any of it should have been, but I still think the fees paid to the attorney should be on a 1099.  Unless Mass. lawyers tend to be incorporated.  

[Lee B]

57 minutes ago, Gail in Virginia said:

Yes, that was the issue.  I am not sure of all the details but there was another substantial amount that was sent as part of the settlement to pay for the other party's share of the business which was not included in the corporation's books.  I am not sure whether any of it should have been, but I still think the fees paid to the attorney should be on a 1099.  Unless Mass. lawyers tend to be incorporated.  

If this was my client, I would be asking for an opinion letter from the law firm as to whether these expenses were a business expense or a personal expense?